Xiaomi Gets A Ticket To the US And Europe By Buying 1500 Patents from Microsoft

The once top-notch Chinese smartphone gladiator, Xiaomi, is apparently struggling to keep its sales growth intact, especially after its global smartphone market share in the last few quarters. The case with Microsoft whose smartphones never saw a boost in sales is even worst. The consequence; both the companies have entered into an agreement which will mutually benefit both the tech giants in one way or other.

In September 2016, Xiaomi’s smartphones will be released with preinstalled Microsoft Office and Skype. The deal also includes selling of 1500 patents by Microsoft to Xiaomi for an undisclosed amount; the development has brought some relief for Xiaomi as it may indirectly open gates of the US market, which, so far, is a bone of contention due to the possible dispute over IP (Intellectual Property) especially with Apple.

The IP (Intellectual Property) became the major hurdle for the Chinese behemoth in past years. According to analysts, due to IP deficits, Xiaomi was the last company which incorporated fingerprint sensors in its smartphones. Therefore acquiring 1,500 patents from the Microsoft is a massive aid for Xiaomi to expand its empire overseas.

“Both Xiaomi and Microsoft respect intellectual-property rights. We believe that with this kind of collaboration and also our commitment for the long-term investment in IP, we’re going to build a very strong patent portfolio.” said by Mr Wong, Co-founder and Vice President of Xiaomi.

What’s in it for Microsoft then?

The Window Phone maker still has scars of its failed smartphone business and has decided to establish itself by following a partner-led model akin Google. Its smartphone OS market share is creeping at 2% despite all the efforts made by the company, including the major reshuffle in top management. Recently due to its declining smartphone business Microsoft laid off 1,800 workers and the company had to write off $7.2 billion which was paid to acquire Nokia in 2014.

Neil Shah, Counterpoint Research India’s Director, shed light on the mutual benefits of this deal; He foresees that China’s Apple, Xiaomi, will benefit from 1500 patents and Microsoft has roped-in Xiaomi “as a serious partner to drive its own ecosystem.”

Xiaomi is Dreaming Globally!

One of the biggest hurdles that the Chinese smartphone major faced on the way to expand its business was the lack of patents. Now, after buying a number of patents from Microsoft, the Xiaomi is geared up to expand its market beyond Asia and Africa region.

Global slump in Xiaomi’s smartphone sales

The slumping growth rate of Xiaomi is the prime reason one of the key reasons behind Xiaomi’s decision to buy patents from Microsoft. The company had registered 9% YoY decline in smartphone growth in Q1 2016. In 2015, Xiaomi’s smartphone sales fall below expectations as the company sold 70 million smartphone units, well short of its sales target and was thus forced to explore other revenue streams, likes of Robotics and Virtual Reality. Xiaomi has access to only six Asian countries, Brazil and very few African countries, restricting its smartphone sales in tight boundaries. The company, therefore, is trying hard to pierce the major smartphone markets, the US and Europe, by avoiding any IP c.

The competition is on

If the heating competition in the Chinese smartphone market was not enough, the entrance of many other Chinese brands in India has added salt to the wounds of Xiaomi.

Oppo and Vivo, the two Chinese smartphone manufacturers, have toppled Xiaomi from the list of Top 5 Global Smartphone Vendors in Q1 2016, according to IDC; Huawei climbed to the 3rd spot just behind Samsung and Apple, followed by OPPO and Vivo. In Q4 2015, Xiaomi had secured a spot in the very list and within just 3 months the table has turned.

The rising competition in its indigenous market is another reason why Xiaomi is forced to look to the global expansion. The company was valued $45 billion in 2014 but is struggling in the current scenario. According to IDC, Xiaomi closed the Q4 2015 at number 3 spot behind Huawei and Apple, but the competition has become stiff for Xiaomi in China.

Not an easy road for Xiaomi

Even after getting access to the patents, Xiaomi has a tough task ahead according to C.K Lu, Senior Analyst – Gartner Inc. Though, these patents will give Xiaomi the ticket to enter developed markets but the company has to compete with smartphone beasts like Apple and Samsung to prove itself in the US.